In the United States, in particular, and in other countries, many financial and other identification cards are relatively simple magnetic stripe cards. In the past these cards have typically had the account number information, account name, expiration date and in some cases a “security code” included in legible form embossed or printed onto the exterior of the cards. Anyone can read this information and it may in many instances be misused if in the wrong hands.
The above form of identification card has also been found susceptible to theft and use in making fraudulent transactions. In many instances the card is stolen and then an unauthorized user employs the card in making charges against the associated account. This is easily done at automated card reading stations at fuel stations, by phone, and at other merchants. This may continue until such time as the card is reported stolen and the account associated therewith is inactivated throughout the card data processing system.
The typical procedures for inactivation of a stolen card account does not involve any inactivation process to the stolen card itself. Instead, the approval process relies on centralized information and data processing systems and added processing steps to stop further fraudulent activity. Thus, the card itself is not changed and can still be accessible for fraud of limited types.
This approval also requires that when a card is lost or stolen, the affected person must obtain a new account number and await delivery of a new card to provide renewal of the original level of security associated therewith. This is an inconvenience. There is also the added risk additional fraudulent charges may be made despite efforts to inactivate the account.
In addition to stolen card fraud there is also a sizeable amount of fraud that occurs by duplicitous, but rightful, account holders or users. In this type of fraud, sometimes called “account holder fraud” or “card holder fraud”, the card holder will purchase one or more items using the charge or debit card and then report the card as having been stolen.
The procedures for dealing with stolen cards, and the difficulties associated with investigations, are such that much of this cardholder fraud goes by undetected without assignment of costly investigation, and without prosecution by government officials. Such investigation and prosecution are often not of high enough priority for these officials to take action. Some financial card issuers believe card holder fraud represents the largest segment of fraud involving these types of cards.
The problem of cardholder fraud has in part been addressed in the case of some debit cards by requiring entry of a personal identification number (PIN) at the place of use on a card reader. This has typically been done using a key pad entry device located at the place of use, which is part of the card handling system. This has also been employed in some cases in connection with credit, debit and other types of magnetic identification cards.
This approach reduces the problem of cardholder fraud and stolen card fraud but does not address the various situations where the more simplified magnetic stripe card readers are employed that use no PIN or other confirmation in addition to the card number or other information provided on the physical card. This includes most charging machines and telephone is charges. Since these are the largest part of the card charges made, there is still risk of fraud. Nonetheless there are magnetic stripe card readers and there are still vast numbers of locations at which fraud of these and other types can be easily effected.
In an effort to stem the costs of card fraud, there has been a substantial amount of development of financial cards that are called “smart cards”. Such smart cards typically employ an electronically programmable integrated circuit or circuits that have permanent memory. The smart cards are programmed for a particular user and account, and are difficult to alter for use in fraudulent transactions by others. This technology has been more widely adopted in European and some other foreign countries than it has within the United States. Since the United States has many magnetic strip card readers, the newer technology smart cards have not solved the problems associated with striped cards and stripe readers.
A prominent disadvantage of smart cards is that they require a smart card reader that is specifically adapted to read the particular type of smart card being employed. The smart card technology that has been developed varies. There are a number of different types of smart cards with complementary smart card readers. The readers are not the same, and a correct type of reader is needed to read a particular type of smart card design. Since there are many smart cards with associated proprietary readers, this has deterred their acceptance in the United States and elsewhere. At this time there is no single standard for smart cards.
Even if a consistent standard for smart card readers could be agreed upon by country or industry, the replacement of the large number of existing magnetic stripe card readers would be very costly and has been strongly resisted by merchants in the United States. This resistance is in part due to the costs of replacing the existing magnetic stripe card readers.
Further aggravating the problem of fraud related to magnetic stripe cards is the complication that current charge card processing policies may impose all losses, costs and/or penalties on the merchants that suffer such fraudulent transactions. The merchants may end up not being paid for the merchandise, and may be penalized on their merchant account for transactions that turn out to be fraudulent, or both. Although these costs might seem to justify replacement of magnetic stripe card readers, much of the retail merchant industry has not yet accepted smart card technology as the appropriate next step in this technological area. Smart cards do not solve all problems and have not gained widespread adoption in many countries.
For these and possibly other reasons, the smart card technologies available have not been widely accepted for use as financial cards in the United States and many other countries that continue to use magnetic stripe reader technology. Accordingly, there are a very large number of merchants that continue to use magnetic stripe readers in making charge and debit account transactions. This continued use of magnetic stripe readers is expected for many years despite the very large volume of fraudulent transactions being made. These fraudulent transactions not only cause costs to be incurred by merchants, they also cause costs to be incurred by the financial industry and insurance companies that insure merchants, banks and other industries against fraud losses associated with charge cards.
Another problem area relevant to financial identification cards are systems that have key pad entry stands adjacent to the magnetic card readers in view of other people. Such systems are commonly used by swiping the magnetic stripe cards though a reading slot in the card reader. The user then uses the key pad to input the PIN. Such systems are typically used at automated bank tellers and at many retail merchant locations.
Although such PIN input card reader systems add the ability to enter a PIN at the time of transaction, such entry of the PIN may be observed by others standing in line. Additionally, more sophisticated techniques, such as using audio waves, radio waves, or imaging, may be used to capture this sensitive information. Such sophisticated techniques may be completely undetectable by the store personnel or customers being subjected to fraud or collection of information that can be used to commit fraud.
There has been resistance to adopting and using card readers with visible PIN input by many individuals due to the above and other security problems.
Additionally, the bulk of magnetic stripe card readers are not set up with an associated key pad entry station and the majority of electronically processed transactions continue to be processed without use of any PIN entry by the card user due to the established procedures for processing such transactions. This makes fraudulent use of magnetic stripe financial identification cards easier with regard to both stolen cards and fraud practiced by cardholders as explained above.
In view of these and other considerations, there remains a need for an improved magnetic stripe card that can be read using existing and future magnetic stripe card readers, yet provides reduction in card fraud and greater convenience and security.